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Andreas Zanin
Analysis | July 20, 2021

Outlook and Forecast: USD/CAD, CAD/JPY

We have been heavily bearish of the CAD in recent posts and it’s fallen hard but will the bear trend continue or will we see a rally or trend change? Our view of the fundamentals, sentiment, and technicals below.

Sentiment

In terms of the majors in recent months speculators have built up a big long position which can be seen on the COT Net Traders data below Despite the big rally in the USD speculators are only now reducing CAD longs:

We still have “smart money” hedgers the commercials short while speculators remain long which points to more weakness ahead. In terms of the CAD against the JPY longs are also elevated.

Fundamentals

The CAD in our view has more potential downside for the following reasons:

Commodities: The commodity complex is a bubble and speculators are heavily after the biggest annual mobve to the upside in 40 years.  While we have seen some weakness in crude oil and  some other commodities, we expect more downside as speculators exit the market.

Risk-Off: We expect more weakness in stocks as we move forward – the CAD has been unable to rally in recent months against a background of risk on and if we see risk-off, this will give an additional boost to the safe-haven USD and JPY.

Interest Rates: If we look at the market  concencus – most traders think the FED is unlikely to cut stimulus soon or raise rates next year but the market sees the Bank of Canada as being the first Major Central Bank to raise interest rates – the good news for the CAD is discounted and our view is the market is underestimating  the Fed timeline to redice stimulus and raise rates.

Technical Analysis

USD/CAD: on the monthly chart below we have targets of 1.300 then 1.3500 with major support at 1.2500. On the daily chart any pullbacks are likely to find support into the 1.2600 level and stop protection should be behind 1.2500. On a breakout above 1.2800, stop protection in iur view could be behind 1.2600.

CAD/JPY: On the chart below , we view the CAD as a sell on rallies back to resistance level 1 stop behind resistance level 2 or a sell on  a break of support – target 81.00.

 

 

Research provided by LearnCurrencyTradingOnline.com

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